Helsinki (27.08.2004 – Juhani Artto) The electronics industry giant Philips intends to make its entire supplier network behave in an ethical manner based on sustainable principles. This policy will apply to both labour rights and the environmental and social impacts of suppliers.
Philips announced this goal in March 2004.
The challenge is ambitious, as Philips buys goods and services from about 50,000 suppliers around the world. These purchases were valued at EUR 19.2 billion last year.
Progress within enterprises in China
Philips has several suppliers in China, and this country’s leadership is notorious for its pointed aversion to freedom of employee organisation. Is the requirement of respect for union rights in China credible?
“China is a different story, as are certain other countries where there are legal obstacles to organising and collective bargaining”, responds Philips’ senior sustainability manager Lucianne Verweij.
“Philips requires its suppliers in China to respect labour rights within the existing legal framework. We do not approach these enterprises with the message that there should be an independent trade union organisation.”
“The main thing is that communication functions well between our supplier and its staff. We have promoted this, for example, at our Supplier Days.”
According to Verweij, some local authorities are positively interested in improving employer-employee relations, especially in the Northern China. “Relations within enterprises are not defined purely on a legal footing,” she stresses.
Self-assessment by suppliers
Verweij recalls that there are also major problems in realising trade union rights in the USA. This country has not ratified the union rights Convention of the International Labour Organisation (ILO).
Before announcing its goals for supplier behaviour in March, Philips redesigned its own organisation in line with ethical principles defined by its management. This also required a great deal of work, as Philips is a huge enterprise that had 164,500 employees in over 60 countries at the end of 2003.
Early in 2004 Philips provided all of its suppliers with material on sustainable behaviour. Suppliers must use this by the end of 2004 to assess how their own behaviour matches the sustainable development principles that Philips requires. Next year Philips will begin to monitor how supplier ethics conform to their self-assessment.
Philips intends to publish the results of this monitoring in its annual report, in which the Group will examine how its overall operations adhere to the principles of sustainable development.
Unethical enterprises will not get orders
According to Verweij, almost all suppliers have responded positively to Philips’ assessment request and programme declaration.
What will happen if a supplier resists Philips’ demands for sustainability?
“If we observe that one of our suppliers is unwilling to apply our principles of sustainability, then we shall seriously consider the future of our co-operation,” Verweij assures.
Could Philips drop a supplier because of unethical features in its operations?
“Definitely. We are increasingly relying on a vast network of business partners for manufacturing but also, for example, with respect to joint R&D activities. The basis for a good functioning network is trust, more than anything else. This trust is to a great extent found in the commitment of our business partners to a sustainable manner of operation.”
However, Verweij notes that ethically challenged suppliers still have a little time to improve their behaviour. “First we must raise awareness among our suppliers of our principles and then we must give them time to adopt these principles.”
When choosing new suppliers Philips already adheres to a strict policy, Verweij says.
In competition for goods and service orders a supplier is not even short-listed unless it meets Philips’ sustainability demands. The strictest criteria applied by Philips seek to ensure that no child labour is used in the supplier’s network, and that the supplier’s environmental impact is consistent with certain international norms.
Competition for Philips’ orders has been enhanced by a decision to reduce the number of suppliers.
Philips engaged in pioneering work
Philips does not negotiate with policymakers or public authorities in China about issues of trade union rights, but primarily discusses these matters with its own suppliers.
Philips also promotes its principles by exchanging experiences with other multinationals, working in China. This mainly takes place through international bodies such as the World Business Council for Sustainable Development (WBCSD), which comprises enterprises interested in ethical issues. Finland's Nokia, UPM, Fortum and Metsäliitto Group have joined the WBCSD.
Philips is a pioneer among multinationals in making ethical demands of its suppliers.
Verweij feels that it is too early to draw conclusions as to the extent to which the work of Philips and other likeminded organisations can improve the poor state of trade union rights in China. Her optimism draws strength from the insight that capitalism and a market economy cannot function effectively without social equity. This in turn requires respect for labour rights.
“The more vigorously China seeks to become a full partner in the global society, the more pressure it will be under to tackle basic questions of this kind,” Verweij observes.
*Originally published in Ahjo, the newspaper of Finnish Metalworkers' Union